Impacts of Alternative Marketing Agreement Cattle Procurement Volumes on Packer Costs: Evidence from Plant-Level P&L Data

Beef packer plant-level P&L data showed significant economies of scale in beef packing, and costs were decreasing across the entire data range analyzed. When both are operated close to capacity, smaller plants are at an absolute cost disadvantage compared with larger plants. When larger plants operate with smaller volumes, they have higher costs than smaller plants operating close to capacity and, thus,have an incentive to increase throughput. For all plants, large and small, average total cost increases sharply as volumes are reduced. A representative plant operating at 95% of the maximum observed volume is 6% more efficient than a plant operating in the middle of the observed range of volumes and is 14% more efficient than a plant operating at the low end of the observed range.